Mexico meltdown

In the late 1980s the Central American nation of Mexico became the darling of large-scale manufacturers, thanks to the advent of maquiladoras (foreign-owned assembly plants).  A few years later, the North American Free Trade Agreement (NAFTA) completed the logistics picture by removing certain international traffic restrictions.  Despite some drawbacks in Mexico at the time, such as worker educational hurdles, many corporations relocated operations there.  A few returned when those aforementioned hurdles led to productivity issues, but for the most part the trend was to move in and stay.

My former employer, Nokia, expanded its Reynosa Mexico production in 2006, which led to the shutdown of the US Alliance facility.  At that time Reynosa appeared to be Nokia’s future for North American cell phone production.

But lately Mexico’s chronic troubles with drug-related crime have been escalating to the point that some US officials refer to the situation as civil war.  Some go so far as to allege that the US is tacitly supporting the escalation of violence through easy access to weapons and lax oversight:

Pastor and Hakim note that the United States helps fuel the violence, not only by providing a ready market for illegal drugs, but also by supplying the vast majority of weapons used by drug gangs.

Pastor says there are at least 6,600 U.S. gun shops within 100 miles of the Mexican border and more than 90 percent of weapons in Mexico come from the United States.

And it’s not just handguns. Drug traffickers used a bazooka in Tuesday’s shootout with federal police and army soldiers in Reynosa, Mexico, across the border from McAllen, Texas.

I was just in Reynosa in November 2008, and I’m relieved that I didn’t encounter anything like that at the time.  Still, I’m concerned for the people there now and wondering if this worrisome situation isn’t behind a recent rumor I heard: that Nokia was considering moving its production, at least in part, back to the US.  I’m reluctant to entertain rumors and shrugged this one off when it was first shared but I have to admit that now I’m curious.  Could the conditions in Reynosa be bad enough that maquiladoras could close?

Adding fuel to this is the news in January that 1000 Nokia Reynosa workers were released, leading 53 of them to file a grievance against the contract hiring firms that selected them for dismissal.  Of course, this can easily be attributed to the global economic collapse so other speculation is premature.

The current US economy isn’t going to support a return to lofty cell phone sales very soon, although Nokia is optimistically predicting at least a slight return to growth some time in second quarter 2009.  Combine that with the news that they are forging closer ties with Qualcomm and things get even more interesting.  Nokia’s battles with Qualcomm over intellectual property and royalty payments led Nokia to enlist Original Device Manufacturers (ODMs) to produce CDMA cell phones.  What happens to such arrangements with Qualcomm now a Symbian technology partner?

I don’t mean to trivialize the troubles in Mexico by musing over my last employer’s dealings.  I’m much more concerned about what the citizens there are going through than what may become of any maquiladoras.  I’m very afraid that, like the global economic debacle, affairs in Mexico will get a lot worse before they get any better…

Disclosure: author is also a current Nokia (NOK) stockholder


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